Business context and reporting period
This is Atlas Crest Investment Corp.’s unaudited Form 10-Q for the quarter ended March 31, 2021, filed May 24, 2021. Atlas Crest was a blank-check company, not Archer Aviation’s standalone operating company; it had not begun operations or generated operating revenue. Its purpose was to complete a business combination.
On February 10, 2021, Atlas Crest agreed to combine with Archer Aviation at an implied Archer equity value of $2.525 billion. The agreement contemplated a concurrent $600 million PIPE at $10 per share. Closing remained subject to customary conditions, including shareholder approvals and minimum cash and net-tangible-asset requirements.
Key financial results and position
| Metric | Quarter ended March 31, 2021 |
|---|---|
| Operating revenue | None |
| Operating costs and franchise tax | $4.73 million and $50,483, respectively |
| Net loss | $2.42 million |
| Non-operating items | $130,025 unrealized gain on Trust Account investments and $2.23 million gain from the change in fair value of warrant liabilities |
| Net cash used in operating activities | $551,940 |
| Cash outside Trust Account | $445,231 |
| Trust Account investments | $500.16 million |
| Working capital | $3.44 million deficit |
| Warrant liabilities | $45.28 million |
Atlas Crest reported no operating revenues, so operating margins are not meaningful. The filing reports no borrowings outstanding under working-capital loans; warrant liabilities are derivative liabilities, not conventional debt. Cash flow from investing activities was $71,248, from Trust Account withdrawals to pay franchise taxes. No prior-year quarter comparison is presented in the supplied financial statements.
Material changes, outlook, and risks
- The reported warrant-liability fair value declined from $47.51 million at December 31, 2020 to $45.28 million at March 31, 2021, producing a noncash $2.23 million gain that reduced the reported quarterly loss.
- A $51.30 million noncash measurement adjustment to redeemable Class A shares contributed to a stockholders’ deficit of $48.72 million at quarter-end. Redeemable shares were presented as temporary equity.
- Management said the low outside cash balance, working-capital deficit, and expected transaction costs raised substantial doubt about Atlas Crest’s ability to continue as a going concern within one year after issuance of the financial statements. Management expected the proposed business combination to address the uncertainty, but gave no assurance it would close or close within the 24-month combination period.
- The filing disclosed a Wisk Aero lawsuit filed against Archer on April 6, 2021 alleging trade-secret misappropriation and patent infringement; Wisk subsequently sought a preliminary injunction and expedited discovery. Atlas Crest also reported that Archer had informed it of a government investigation involving an employee and subpoenas to Archer and three other employees.
- Atlas Crest identified a material weakness in internal control over financial reporting related to accounting for complex financial instruments, following errors in warrant accounting and a restatement of its 2020 financial statements. Management said it planned remediation, but noted the measures would take time and might not be effective.
- COVID-19 could negatively affect Atlas Crest’s financial position, results, or search for a target, but the filing said the specific impact was not determinable. The filing provides no operating forecast or guidance.
Most important facts for investors to verify
- Confirm the business-combination and PIPE closing status, required approvals, redemption levels, and minimum-cash conditions; the PIPE proceeds were contingent on closing.
- Review the Wisk litigation and reported government investigation, including subsequent developments and their potential effect on Archer and the transaction.
- Check the warrant-accounting restatement, the material-weakness remediation, and the related financial-control disclosures.
- Reconcile share-redemption disclosures: the balance sheet reports 50 million redeemable Class A shares at March 31, while the MD&A’s critical-accounting-policy discussion gives a different figure of 44,643,406.
- Reconcile the filing’s “Legal Proceedings” section, which says none, with the MD&A’s disclosure of the Wisk lawsuit and related investigation.